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Flurry of Vessels Booked from ME to Europe after Pernis Refinery Outage

Oil traders are rushing to secure vessels to ship refined fuel from the Middle East to Europe after a Dutch refinery outage made the route profitable, pushing freight rates to multi-month highs, traders and shipbrokers said on Thursday.

At least 10 long-range tankers able to carry 55,000 to 75,000 tons of jet fuel and diesel have been provisionally booked to head to Europe, with at least four of them taken by Royal Dutch Shell, two shipbrokers said. In contrast, there was not much activity on this route early in July, when traders were exploring shipping middle distillate cargoes on a reverse arbitrage from Europe to Asia.

The flurry of activity this week pushed freight rates for 65,000-ton clean tankers plying the Middle East to Europe route to US$20.08 a ton on Wednesday, up 11% from Monday and 12% from a week ago, said Ralph Leszczynski, head of research at Banchero Costa.

"Given the momentum, it should probably go a little further up over the next few days, although it's already at the highest level since December," Leszczynski said.

The outage at Europe's largest refinery - Shell's 404,000 barrels-per-day (bpd) Pernis refinery in the Netherlands - comes just after a series of other disruptions, such as at Total's 230,000 bpd Leuna oil refinery and Greek refiner Hellenic Petroleum's 100,000 bpd Elefsina plant, and is boosting demand, Leszczynski said.

"There are shortages of diesel in Europe, with inventories falling, and European diesel prices are surging to the highest levels since April," he said.

Shell shut most units at Pernis following a power outage caused by a fire on the evening of July 29. It has said the earliest restart date will be in the second half of August.

Shell declined to comment saying it does not comment on details of commercial agreements or the movement of cargoes.

The oil major has suspended loadings of oil products from the refinery, and traders in Asia, the Middle East and the United States have been looking to send middle distillates to Europe to fill the gap.

Traders said it is now profitable to ship jet fuel from the Middle East to Europe.

The exchange of futures for swaps (EFS), a contract that traders use to hedge their Asia-Europe arbitrage cargoes, fell to minus US$8.24 a ton on Thursday, lowest since January 2015, Reuters data showed.

The arbitrage typically gets more profitable when the EFS trades at about minus US$15 a ton or below. The EFS was a positive US$5.01 a ton on July 11.